Nov. 30 (Bloomberg) -- The United Nations General Assembly
voted to recognize Palestinians as an “observer state,” a
largely symbolic upgrade in status that drew criticism and
potential financial penalties from the U.S. and Israel.

The 193-member General Assembly voted 138-9, with 41
abstentions, for a resolution granting the Palestine Liberation
Organization an implicit form of statehood, putting it on a par
in the world body with the Holy See. The most significant
ramification is that the Palestinians will be able to join UN
agencies and sign treaties, such as the Rome Statute that
established the International Criminal Court.

Palestinian Authority President Mahmoud Abbas appealed for
support yesterday, saying the action would amount to a “birth
certificate” for the State of Palestine. It will give hope to
millions and save a peace process in “intensive care,” he
said, even as the U.S. and Israel called the UN action a setback
to the peace process.

Abbas sought the diplomatic victory in New York to blunt
the momentum of his Hamas rivals, who rule the Gaza Strip while
he governs the West Bank. Hamas is considered a terrorist
organization by Israel, the U.S. and the European Union.

Israeli Prime Minister Benjamin Netanyahu said the UN vote,
which his office called a “meaningless decision,” will hinder
the peace process.

Israel Reacts

“The only way to achieve peace is through agreements that
are reached by the parties directly; through valid negotiations
between themselves and not through UN resolutions that
completely ignore Israel’s vital security and national
interests,” Netanyahu said in an e-mailed statement before the
vote. “And because this resolution is so one-sided, it doesn’t
advance peace, it pushes it backward.”

U.S. Ambassador to the UN Susan Rice called the resolution
“unfortunate and counter-productive.”

“Today’s grand pronouncements will soon fade, and the
Palestinians will wake up tomorrow and find that little of their
lives has changed, save that the prospects of a durable peace
have only receded,” Rice said.

In addition to the U.S. and Israel, the countries voting
against the resolution were Canada, the Czech Republic, Marshall
Islands, Micronesia, Nauru, Palau and Panama. The U.K. and
Germany were among the abstentions.

A year ago, U.S. opposition killed Abbas’s bid in the
Security Council for the PLO to become the UN’s newest full
member. Yesterday’s lesser step by the General Assembly, just
weeks after President Barack Obama was re-elected, sets in
motion a series of punitive actions by the U.S. and Israel.

‘Hollow Victory’

“In a basic cost-benefit analysis, it seems that the
benefit is very little and the cost very high,” said Robert
Danin, a senior fellow at the Council on Foreign Relations in
Washington. “Sure he’s desperate, but he will go back to
Ramallah with a hollow victory, as nothing on the ground will
have changed.”

Hours before the UN vote, a bipartisan group of U.S.
senators introduced legislation to punish the Palestinian
Authority. Senators including Republican Lindsey Graham of South
Carolina and Democrat Chuck Schumer of New York proposed a
measure that would force closing the PLO office in Washington
unless the Palestinians enter into “meaningful negotiations”
with Israel.

The proposal, offered as an amendment to the Senate defense
authorization bill, also would eliminate U.S. foreign assistance
to the Palestinian Authority if the International Criminal Court
adjudicates any matter proposed by the Palestinian Authority.

Cheering Palestinians

The UN vote comes a week after a cease-fire that halted
eight days of bloodshed between Israel and Hamas. Hamas leaders,
who seized control of the Gaza Strip in 2007 from Abbas’s
Palestinian Authority, portrayed the outcome of the fighting as
a victory that will ultimately force Israel to lift its blockade
of the seaside territory, home to 1.6 million Palestinians.

Hebron, Bethlehem and other West Bank cities were festooned
with Palestinian and UN flags while folk dancers and chorus
groups climbed on outdoor stages to celebrate the statehood
vote.

“We are thirsty for the taste of independence,” Ibrahim
Sajadi, a 47-year-old teacher, said while being jostled by the
crowd that packed Ramallah’s Yasser Arafat Square, where giant
television screens broadcast Abbas’s speech live from New York.

“The General Assembly is called upon today to issue a
birth certificate of the reality of the State of Palestine,”
Abbas said in a 25-minute address to the General Assembly before
the vote. “Our endeavor is not aimed at terminating what
remains of the negotiations process, which has lost its
objective and credibility, but rather aimed at trying to breathe
new life into the negotiations.”

Combative Tone

Still, Abbas struck a combative tone in the speech, in
which he didn’t invite Israel to return to direct talks,
denounced its “racist, colonial occupation” and its “
aggression against our people in the Gaza Strip.”

Netanyahu, who wasn’t present in New York, responded via
text message: “The world watched a satanic speech dripping with
poison, filled with deceitful propaganda against Israel.”

In Gaza, people cheered and men fired AK-47s into the air
in celebration. Hamas leaders voiced tepid support for the UN
effort while maintaining that last week’s confrontation, in
which 175 Palestinians and six Israelis lost their lives, did
more to advance the cause of statehood than Abbas’s past
diplomatic efforts.

Negotiations broke down two years ago when Netanyahu
refused to extend a partial 10-month construction freeze in West
Bank settlements and the Palestinians said they wouldn’t resume
talks as long as building continued.

U.K. Comments

With its new status, the PLO may pursue membership in the
International Criminal Court and seek legal action against
Israel for alleged human-rights abuses in the West Bank and Gaza
Strip.

The U.K abstained, rather than voting for the measure,
because Abbas failed to give assurances that the Palestinians
wouldn’t go to the court which “would be likely to make a
return to negotiations impossible,” Foreign Minister William
Hague said in an e-mailed statement.

Hague called on the Palestinians to return to negotiations
without preconditions and urged Israel “to avoid reacting in a
way that undermines the peace process.”

Financial Hits

In response to yesterday’s vote, Israel plans to withhold
800 million shekels ($210 million) of tax revenue it would
normally transfer to the Palestinians, and use it to pay their
debt to Israel Electric Corp. Netanyahu issued a statement
saying the Palestinians “have violated agreements with Israel
and Israel will act accordingly.”

Also at stake is the continuation of a U.S. aid package
that has averaged $600 million a year since 2008, according to a
Nov. 21, 2012, report by the nonpartisan Congressional Research
Service, the research arm of Congress.

Also, U.S. law requires cutting off U.S. funding to any UN
agency that recognizes a Palestinian state. A day after Unesco
granted Palestinians membership last year, the U.S. halted
funding for the UN cultural agency best known for its
designation of “world heritage” sites.